Kansas net farm income plummets, weighed down by falling grain and livestock prices

MANHATTAN, Kan. – Average net farm income in Kansas plummeted to $4,568 in 2015 or less than 5 percent of the previous year’s average of $128,731, according to annual Kansas Farm Management Association member data. The 2015 level was the lowest average level of nominal net farm income since 1985.

The average net farm income – recorded on an accrual basis – had been slipping, but until 2015 had been over $120,000 for several years. In 2015, however, the drop was more akin to falling off a cliff. Average net farm income across the state was $159,352 in 2012 before dipping to $140,356 in 2013 and $128,731 in 2014 before falling to $4,568 in 2015. Net farm income represents the amount a farm has available to use for debt repayment, family living and expansion.

Across all farms, the gross crop value per acre in 2015 was $315.92, down from $339.36 in 2014, $407.27 in 2013 and $421.44 in 2012.

Generally, across the state, farms that primarily focused on dairy production, cow herds and irrigated crop farms fared better than dryland farming, livestock backgrounding and farms that both grew crops and had livestock backgrounding operations, said Kevin Herbel, KFMA program administrator.

U.S. beef cattle prices dropped from an average $166 per hundredweight (cwt) in January 2015 to $132 by January 2016 – the largest one-year drop on record, according to the U.S. Department of Agriculture’s Economic Research Service.

“As we come out of a period of strong profitability in the agriculture sector and enter this current downturn, it is important for producers and their advisors to know and understand the financial position and financial performance on each operation,” said Herbel, noting that not all Kansas farmers are KFMA members, but the annual report can be viewed as a reflection of financial conditions for farmers across the state, especially when comparing one year to the next. The data presented in the 2015 analysis came from 1,159 KFMA member farms and ranches.

Regional differences

In 2015, southwest Kansas farms fared better than in other areas of the state, with net farm income of $37,423. North central Kansas farms averaged $11,452, southeast, $15,119 and northwest farms averaged a loss of $2,972. South central farms averaged a loss of $9,730 and northeast a loss of $11,777.

“One of the reasons we stayed positive was our yields on grain sorghum,” said Doug Stucky, southwest area KFMA extension agricultural economist, based in Dodge City. “We had over 100 bushel (per acre) milo yield average. Some people had never had the yields they had last year in milo. Hopefully we’ll top that this year. With the subsoil moisture we’ve had, it’s possible.”

Lower commodity prices weighed on agriculture in northeast Kansas, said KFMA economist Clay Simons, based in Council Grove. “Irrigated corn averaged 213 bushels per acre compared with only 177 bushels the year before. We had better production but could not convert that to cash.”

Simons said marketing fell short in some cases, noting that some growers are still storing 2015 wheat.

He noted that producers had grown accustomed to much higher crop prices in recent past years and in turn had spent money, particularly on equipment. Now that grain and cattle prices have dropped sharply, it’s hard to scale back expenses accordingly.

“Our ability to double crop really helped,” said Abilene-based KFMA economist Bob Kohman of north central Kansas farms. “We had excellent crops but the cattle side really hurt us (in 2015). Now we’re looking at ways to manage our working capital.”

Debt levels increased by $30,550 per farm with 59 percent of the increase in current debt and 41 percent in intermediate and long-term debt. With the change, the debt-to-asset level increased to 21.5 percent from 20.2 percent for the average farm during 2015. “While profitability was low in 2015, this still represents a strong balance sheet at the end of the year,” according to the KFMA report. With that said, in this environment “we will probably see some restructured debt,” said Mark Wood, KFMA economist for northwest Kansas, based in Colby.

One result of the lower grain and livestock prices and subsequent drop in net farm income is that machinery purchases have slowed, the economists said. Also, total family living expenses for KFMA member farms in 2015 averaged $69,956, down from $74,447 in 2014.

Managing in this environment

“We’re still facing (in 2016) lower grain prices – maybe for some time,” Herbel said, noting that in times like this, producers should identify their cost advantages. In other words, identify the enterprises on their farms that have the most ability to deal with current commodity prices.

Crop rotation choices, knowing costs and particularly where a producer can have a cost advantage are of primary importance right now and for the months ahead, the economists said.

“In situations like this, it’s important to not sit back and see what’s going to happen,” Herbel added. “Now’s the time to manage your current financial position, manage your cost structure and look at using your resources, including labor and equipment, as efficiently as possible.”

“Identify areas where you can improve as well as areas of strength you can build on through this time of difficulty in agriculture,” he said.

K‑State Research and Extension is a short name for the Kansas State University Agricultural Experiment Station and Cooperative Extension Service, a program designed to generate and distribute useful knowledge for the well‑being of Kansans. Supported by county, state, federal and private funds, the program has county Extension offices, experiment fields, area Extension offices and regional research centers statewide. Its headquarters is on the K‑State campus in Manhattan.